The Economic Consequences of the Rio Grande do Sul Floods

By Diego Viana

The southernmost state in Brazil, Rio Grande do Sul, was under heavy rain and flooding for several weeks in May. The Guaíba, the most important river in the region, which flows through the capital city of Porto Alegre is usually about two meters deep. It went over five meters. More than 400 cities (out of about 480) were hit by this climate catastrophe, with over 2.1 million people affected and over 170 casualties so far. Material losses are hard to calculate at this point, but insurance companies already consider this the "worst event in our history" and the government estimates that reconstructing the Rio Grande do Sul will take several years.

The connection between the climate catastrophe and the rise of a suicidal far Right immediately becomes evident as social media in Brazil is overrun with swarms of outright lies, political accusations, and fraud. Meanwhile, intellectuals get stuck in a somewhat sterile discussion about whether one may refer to the people who have lost their homes and belongings as “climate refugees” — because it is shocking to realize that this term may refer to people other than the poorest among the poor.

Horrifying events like this have been occurring at increasingly shorter intervals, as we all know. Simultaneously with Porto Alegre, parts of Afghanistan, Kenya, Texas, the United Arab Emirates, Italy, Germany and California have also been under water. Not to mention droughts, wildfires and hurricanes. But in the midst of this chaos, two lessons about our shared future stand out, which may be helpful beyond the regions directly struck, giving us a preview of how to build a future that would be different from what is being prepared right now.

Postponing an exam

The first lesson regards the possibility and requirements of large-scale planning. It so happens that the Brazilian federal government was planning a massive recruitment exam for the public service, which has been anemic after almost a decade of neoliberal rule. The tests were to take place on Sunday, May 5th, in more than 200 cities across the nation with 2.14 million candidates competing for 6,640 jobs. But then the rain came, and it turned everything upside down: how can you administer such an enormous test when many contesting for those public jobs are isolated, stranded, and homeless?

After a week of hesitation, and just two days before the tests, the government finally convened a press conference to announce what was obvious to all: the "National Unified Recruitment" was postponed and later rescheduled to August. Maybe it is just a predisposition on my part, but while I watched the conference I felt that the officials, ministers Esther Dweck (Public Management) and Paulo Pimenta (Communication), seemed somewhat astonished, maybe dismayed. Even among the journalists, there was, or so I felt, an atmosphere of disbelief.

This discomfort is not entirely surprising, though. For someone who had been planning an ambitious, country-wide operation, involving logistics, security forces, and millions of people, I can imagine that the idea of ​​having to postpone the tests didn't even cross the organizers' minds. In fact, a reporter did ask about provisions for an eventual postponement of the exam. There were none.

The federal government placed this initiative at the top of its priorities. It is boasted as an innovation in public sector recruitment, which it is indeed. But it is also an expensive and risky undertaking that had to be stopped in a hurry because nobody considered the intervention of natural forces. Even the decision-making process hints at the impasse the authorities were put in due to the floods. When the press was summoned, dozens of lives had already been lost, and entire municipalities were almost unreachable. It was clear that the "gaucho" (residents of Rio Grande do Sul) candidates were excluded from the test. If communication to the general public only occurred on Friday afternoon, it is because demobilizing this colossal apparatus is almost as hard as assembling it. I suppose that even the budget law will need to be amended.

The postponement made painfully and pathetically clear that in times of global connectivity and interdependence, an episode such as a natural disaster is never “only itself.” It is not limited to its immediate causes and direct effects, where it happens, nor is it limited to its own regime of existence. In a world of complexity, every system and every event spreads and contaminates other aspects of reality, other systems. The eruption of the concrete, palpable, real, into the universe of planning, abstraction and bureaucracy perfectly illustrates the reality we are entering.

I want to draw attention to the meaningful difference between this catastrophe's domino effect and two other consequences of the flooding. First: Rio Grande do Sul is an important producer of rice, wheat and cattle. It is clear by now that the output of these commodities will be compromised, putting pressure on prices. This has led the federal government to announce that it will resort to the international market. Shock waves can also reach interest rate decisions and, with a spike in inflation, unpleasant political consequences are not out of sight, with the far right constantly on stakeout.

Second: the fact that, per the insurance companies, the destruction of cities and plantations in Rio Grande do Sul is the “worst event in the history of Brazil.” The costs incurred could sap some of these institutions and is likely to lead to a significant reallocation of resources, which would weaken other public policies. As for insurance, as has been predicted for some time, we can expect a progressive and heavy increase in premiums, making investments of all types more expensive, especially the most ambitious and expensive ones, such as infrastructure.

In both cases, we are dealing with long-term issues, but mostly already advanced and priced. It is common to hear from economists and managers, but also from some scientists dedicated to complex systems, that the global interconnection of logistical, financial and economic systems makes it possible to overcome ruptures and failures that eventually appear in some part, guaranteeing the stability of the whole. The reference usually evoked is the initial 1966 Arpanet project, the embryo of the internet: decentralized and increasingly numerous connections are almost impossible to take down.

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Nonetheless, other scientists linked to complexity also warn that these ultra-complex systems, although resilient, are vulnerable. This means that they can resist deformation and remain stable, but if a particular disturbance, small as it may be, turns out to be capable of compromising the system, it will collapse completely and suddenly. In a dangerous but not absurd analogy: this is what happens in the death of an organism, for example, or the collapse of an ecosystem. To return to the Arpanet reference: the problem is not always in preventing transmissions from being interrupted. It may lie in the transmission itself. This is what Edgar Morin had in mind back in the 1990s, when he coined the term “polycrisis,” now taken up by historian Adam Tooze and theorized by the Canadian think tank Cascade Institute.

The postponed exam is suggestive of the increasing difficulty we will have in planning and articulating large-scale projects and programs. Without taking into account the climate factor, which is less and less “imponderable,” the government wanted to carry out a broad and solid initiative — and discovered that it was fragile. It won't be the last time something like this happens. This is at the core of what we have come to call "the new normal": from now on, the norm will be that all planning will be subject to failure for reasons that will fall from the sky or emerge from the depths, not without warning, far from it, but with warnings we may not be able or willing to hear.

Solidarity, distribution and economy

What then? — I thought, as I completed the previous section. Do we simply sit and cry, waiting for the moment when a calamity reaches us too? What does all this, the coming crisis of planning, imply for workers, proletarians, the wretched of the earth, and international solidarity in general?

This brings me to my second point. There has been a remarkable outpouring of solidarity in Brazil since the magnitude of the catastrophe became clear. Of course solidarity always emerges when one of these disasters occurs, and there have been many in various regions of the country: landslides in the Southwest, droughts in the North, fires in the Amazon and the Pantanal region, floods all over. But this time there is something different due to the sheer magnitude of the event.

No previous environmental disaster affected the infrastructure of modern life so deeply in Brazil. Airports closed, with runways sometimes inaccessible even for the planes carrying vital aid. There are broken dams, isolated cities and neighborhoods, roads cut, and power, telephone and internet networks down. The distribution of food, medicines and clothing in this scenario can be a daunting challenge. And it has indeed mobilized organizations from all around the country, in the form of donations, logistic networks and information centers.

While this parallel economy was taking shape, representatives of the private sector and the State governor Eduardo Leite himself were more preoccupied with the possibility that donations would have a deleterious impact on local commerce. I mention this not because I want to smear Mr. Leite as someone insensitive to his people's suffering — though one must admit he is indeed responsible for withholding funds marked for preventing floods — but because it presents us with a pulsating contrast between different kinds of economic logic. And this contrast is likely to intensify in the near future, suggesting what may amount to a paradigm shift.

I am thinking about a distinction that Karl Polanyi, the Austrian-Hungarian socialist political economist, makes in his masterpiece The Great Transformation, published in 1944. According to Polanyi, in the history of human societies, there have been three major principles of economic practice, in the sense of the production and distribution of the means of livelihood. These are: householding, which accounts for a mostly autarkic existence; redistribution, in which a central instance, such as the Mesopotamian empires, amasses the goods produced by the collective as a whole and redistributes them according to its own criteria; and reciprocity, of which trade is a particular case, and designates a system where different parties exchange their productions either through a price mechanism or a gift system.

Polanyi argues that a central element in the emergence of capitalism is the dominance of market exchanges over all the other systems. He says the market economy is disembedded from society in general. There is still some room for householding, as the nuclear family is responsible for many activities that are crucial for economic life, particularly the reproductive and unpaid labor ascribed to women. From the institutionalist perspective, the capitalist firm also absorbs a chunk of what would fall into the category of householding. Redistribution still exists too, especially under the form of grants, by both the state and the corporate sector. And non-market forms of reciprocity can be found all over, including gifts, favors, and the occasional barter. But they are all subjected to the general logic of monetary trade, their worth is calculated according to their link to markets, their position in economic life is below secondary.

Very well, what does this have to do with the disaster in Brazil and the solidarity that has been manifested since it began? The answer is, I believe, that the initiative to organize donations, which will become progressively more common as the climate crisis unfolds, contains the seed of a future recomposition of the three economic logics. When a breach in the regular market distribution of goods and services leads to a surge of solidarity, alternative economic circuits emerge spontaneously, simply because they must. This has been the case in emergency situations that had nothing to do with the climate, such as the Argentinian collapse in 2001, wartime scenarios, and the fall of the Soviet Union. Forms of householding, with families tending to their own needs; redistribution, with central committees organizing rations; and forms of non-monetary reciprocity, or alternatively monetary reciprocity, such as the “trueque,” came to life.

In all of these cases, the relative stabilization that succeeded the trauma reestablished the market mechanisms, and these other forms died down. The same happens with every environmental calamity in Brazil and elsewhere: circuits of donations and redistribution arise and dissolve just as quickly. But this time the scale is much higher, the needs more urgent, and the response is proportionally more ostensible. Makeshift centers for collection, transportation and distribution of aid packages are set up overnight, with a remarkable capacity of coordination. Online platforms dedicated to identifying particular needs and connecting them to donors have been created. Volunteers flock to the affected areas, but given the magnitude of the destruction, can only actually act when coordinated with other groups with better knowledge of the region.

Of course these initiatives also tend to wane as the situation improves. But we must take some things into account. To begin with, we are so used, at least since the Communist Manifesto, to think of capitalism as infinitely resourceful, ruthless, and awe-inspiring, that we can forget it has its own internal fragilities. While it may be easier to imagine an end to the world than to capitalism, as Fredric Jameson once said, capitalism still needs the world to be in place, and relatively stable. Disaster capitalism, in Naomi Klein's words, may bloom with the occasional landslide or earthquake, but if people lose the capacity to sell their workforce and purchase their livelihood, the market becomes groundless.

Also, the experience of those who engage in these distributive acts of solidarity represents a valuable acquisition of knowhow and habit. In time, the practice of non-market economic logics may very well solidify, at least from the side of distribution, if not production. As the environmental calamities unfold, as they are expected to do, on the one hand the capacity for large scale planning, corporate or governmental, will be shaken. But on the other hand, it is predictable that the recourse to alternative arrangements will lose its alternative character and constitute a permanent response. Of course, this will require further learning and the development of intellectual tools and strategies.

It is obviously sad to realize that the perspective of non-capitalist arrangements becomes realistic due to the accelerated degradation of the conditions of life on Earth as we know it. The mere fact that we have reached such a stage is a testimony to our incapacity to build large-scale and long-lasting alternatives to the radical capitalism of the last half-century. We should be clear about the fact that the environmental crisis is not an opportunity for change; instead, change is the only way out of the calamities that come with the degraded environment. But it requires careful work of construction, from the ground up. And this is why we can look for inspiration in the spontaneous emergence of solidary economic arrangements in Southern Brazil.

Diego Viana is a Brazilian economic journalist. He earned his PhD in political philosophy from the University of São Paulo and covers Brazilian politics, economy, and social conflict.

"I Don't Believe Capitalism Can Be Fair": An Interview with Clara Mattei

[Photo credit: AFP via Getty Images]

By Diego Viana

Where capitalism goes, austerity invariably follows. This phenomenon has puzzled intellectuals for generations. Why does the dominant economic system consistently adopt reforms that seem to destabilize its very foundations?

Dr. Clara Mattei is a renowned scholar and professor of economics at the New School whose research tackles this question. Her latest book, The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, argues that austerity isn’t “a policy mistake” but is instead a core feature of capitalism. 

Her analysis concentrates on Europe in the years immediately after World War I. Following the armistice, European workers had a rare moment of revolutionary fervor, spurred by the recognition that war governments were perfectly capable of managing the economy beyond the imperatives of profit.

Dr. Mattei argues that, from 1920 to 1927, austerity was instrumental in upholding European capitalism. It accomplished this via three tools: fiscal, monetary, and industrial policy. The trinity entails, respectively and roughly, cuts in social expenditures and regressive taxation, interest rate hikes, and labor suppression. Neoclassical economists like the United Kingdom’s Ralph Hawtrey and Italy’s Maffeo Pantaleoni worked hard to argue for these policies. Ultimately, though, implementation required the break from democracy and political violence that enabled Benito Mussolini’s fascist regime and the development of a fascist mindset which later spread across Europe.

Last month, Hampton Institute contributor and economic journalist Diego Viana interviewed Dr. Mattei about her thesis and worldview. Please enjoy the following transcript, which we have edited for clarity and length:

Diego Viana | Your book argues that austerity is central to the capitalist order. How do current mobilizations figure into this argument?

Clara Mattei | They make the book very topical! Look at the United States. People are mobilizing. And it's not just the strikes. Workers are questioning wage labor altogether. This happened after World War I, when the state politicized the economic realm by intervening in it as part of the war effort. And it’s happening, to a lesser extent of course, again today. Folks got a taste of life without exploited work during COVID when the government offered some social support. Why should they return to work in such horrible conditions now?

That’s where austerity enters the picture. It increases our dependence on markets. That’s typical and specific to capitalism. Most people only have rights if they have money in their pockets that they acquire through wage labor. By cutting social benefits and weakening workers' bargaining power, austerity seeks to ensure no alternative but to bend our necks and accept exploitative conditions.

DV | Nevertheless, mobilizing workers remains difficult due to precarity, reduced union density, etc. Is victory possible?

CM | Your analysis is accurate. It speaks to the “success” of austerity. A half century of hardcore measures has made labor precarious, with fewer union rights, less welfare, and more privatization. Interest rates are rising too, which limits ordinary people’s access to credit and produces more unemployment. Yet people are still mobilizing. True, unions are weaker now than they were after the Second World War — and definitely after the First. But our system is based on exploitation of the majority. So, whenever this majority mobilizes, it's a big deal.

This October the United Auto Workers secured a more generous and progressive wage structure following a 45-day strike. This victory is very serious. And it shows that — when push comes to shove — capital needs workers, who thereby have tremendous leverage to win demands. So —  wherever they are — if workers withhold their labor, that frightens capital.

My book talks about the weapons of the State and its political and economic elites to wage class war against the people. But the book is also optimistic. It recognizes that class struggle is ongoing and workers can win. Indeed, capital as wealth requires capital as a social relation — namely, wage slavery. This means that, so long as we have capitalism, the fight continues. Of course, there have been historical moments when workers were in retreat. But I think now we’re seeing that austerity doesn't mean the death of workers. Austerity is a tool to keep workers in check. In that sense, it acknowledges their power.

DV | Many American economists believe recent stimulus plans mean the age of austerity is over. You push back against this by conceptualizing fiscal, monetary, and industrial policy as a trinity of tools to enforce austerity. Explain how that trinity operates in our current milieu.

CM | The trinity is operating at all levels. Hiking interest rate disciplines workers by “loosening” a tight labor market, which simply means increasing unemployment. And that is exactly what the Fed aims to do. They want unemployment to keep workers desperate enough to accept low wages. That's a really powerful weapon right now. Even if it hasn’t worked yet, it will. The recession is coming. The recession is a short-term cost for a much longer-term gain, which is stabilizing class relations.

DV | How about the fiscal side?

CM | I try to break from mainstream definitions of austerity. People equate it to budget cuts and tax increases. This means nothing. It’s the typical practice of economists to look at the aggregate, disregarding the class dynamics of who wins and loses. But this approach leads to mistaken conclusions — like the idea that austerity is behind us. The state is spending a lot of money, after all! The crucial point is that austerity does not mean “small government” but it means that the government is actively intervening in favor of the elites and to the detriment of the many. 

So fiscal austerity is central, and Bidenonomics is a good example. The public budget expanded. But where did the money go? It went to war, the military-industrial complex, and  energy companies to incentivize them to go green — and, of course, bank bailouts. The state is spending money but giving it to capital owners while structurally defunding social services. For me, fiscal austerity is about social expenditures — not state expenditures generally.

DV | So austerity is compatible with considerable state spending?

CM | Yes! The point is where the state spends. And it’s spending not on the people but the market. It’s commodifying basic services. Joe Biden has done nothing in terms of social redistribution. And his fellow Democrat, Eric Adams, the mayor of New York City, has just announced massive cuts to social spending, spurred also by the fact that interest rate hikes make it more expensive — especially for local governments — to borrow.

So, there, we see the connection. The elements of the trinity reinforce one another. Monetary austerity is reinforcing fiscal austerity. And then there’s the other side of fiscal austerity, which is not just about social expenditure cuts but also regressive taxation. Who is paying the taxes? Again, we’re seeing constant increases in consumption taxes and a total unwillingness to tax capital, profits, inheritance, or any form of wealth. This is very structural. And it’s not unique to the United States. In Italy, Prime Minister Georgia Meloni is doing the same. It's worldwide.

DV | The third element is industrial austerity, particularly in the form of repression.

CM | Biden’s administration can try to give the impression of being pro-labor but it's able to do very little to combat privatization and labor deregulation. It has actually even intervened in a quite cooperative way to block railway workers from striking to achieve better rights last winter. The wins today are coming from organized labor — not the administration.

In other countries, industrial austerity is more present than ever and unions are suffering. Work is getting increasingly precarious. Austerity is really about class — it is about the state’s management of the economy in favor of the elites.

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DV | Beyond explaining austerity, you put it at the core of the capital order — the very structure of capitalism itself. Is this a renewal of Marxian economic thinking?

CM | Yes. My work aims to use Marxian methodology, which understands economic relations as inescapably political. This naturally leads to a complete rethinking of austerity. I want to help people realize that the relationship between capitalism and austerity is structural. And this means that the state is constantly intervening to weaken workers and protect capital. Analyzing how austerity works in real time totally confirms this.

Now more than ever, we must heed the most important insight of Karl Marx's critique of political economy. Marx described how economic growth is founded on capital as a social relation. The majority of people must sell their labor for a wage and this is not at all a natural feature Value creation under capitalism ultimately requires exploitation. While a lot of people — even on the Left — take capitalism for granted, capital is based on a specific social relation. That means it’s not only very political but also inherently fragile. This is why it needs constant protection. There are certain historical moments in history in which that fragility emerges.

DV | You describe a change after World War I in which the spontaneous austerity of Gilded Age capitalism had to become managed and coordinated, hence the Brussels and Genoa conferences. Is this the bedrock of later institutions like the Bretton Woods system or the G7, the World Economic Forum, the World Trade Organization?

CM | Exactly. And I think the book doesn’t do justice to the ways in which political institutions prior to the War were actively preserving austerity. There's plenty of literature showing how the gold standard was not a natural mechanism. It was actually quite politically encased. What I argue in the book is that austerity became visible after World War I.

Austerity is always latent in capitalism and emerges when the system is most contested. When its pillars shake, institutions coalesce to protect the capital order. That's why I focus on 1919 and the period right after World War I. It was a moment in which indeed there was a lot of demand for economic democracy.

In Britain, besides universal suffrage, people demanded a greater say in economic issues. They understood the pretext of balancing budgets was purely ideological and no longer tenable. During the War, states spent all the money they wanted. So people were asking for a post-war reconstruction in which resources were utilized in their favor rather than for profit making.

In these moments of political crisis, austerity refines its tools. Many institutions sprung into action in the early 1920s — especially independent central banks — to insulate monetary decisions from democratic intrusion. I focus on this period in the book. But my next project is to examine how austerity operated after World War II. So austerity could be an angle to rethink the history of capitalism in the 20th and 21st centuries.

DV | The book’s subtitle is about austerity paving the way to fascism. In the case of Italy, the opposite seems to have happened. Fascism paved the way for austerity. What do you make of that?

CM | A common idea is that fascism emerges as a reaction to austerity. But you’re right. In Italy, something different happened. The original fascism — Benito Mussolini's fascism — swept to power because of its capacity to implement austerity. Fascism and austerity needed one another. The authoritarian state was able to enforce austerity much more effectively than any democratic government. Unlike its liberal counterparts, it could intervene directly to repress wages, curtail strikes, and implement a whole slew of social cuts and privatization while jailing opposition. That’s why, as I describe in my book, neoclassical economists were very excited about Mussolini. He imposed their pure models on reality. 

Mussolini was a response to the fact that, shortly before the March on Rome, there were full-blown factory occupations. Workers were gaining lots of rights and crumbling wage relations in favor of democratic management of industry via factory councils, of which Antonio Gramsci was a very important leader. The elite couldn’t have that. Fascism was a godsend. Montagu Norman, who was the governor of the Bank of England, said, “Fascism has surely brought order out of chaos… The Duce was the right man at a critical moment.”

Norman said this in 1926, when the regime had already shown what it meant to be a fascist regime — killings and all. But he liked that fascism was all about suppressing wages, defending private property and investment, and using the state to keep industrial peace to maximize profit above everything else.

DV | How do you see the link between fascism and austerity today?

CM | Today, a lot of fascist or authoritarian governments come to power promising no austerity. Indeed, people feel the economic violent impact of austerity on their daily lives and desire something different. However, because of austerity’s preeminence, people have lost class consciousness and believe they can trust bourgeois politicians — especially the lie that it's all the fault of migrants. So there's an inability to see what’s at stake, because class struggle is never discussed.

Italy today is emblematic. Citizens voted for Meloni’s far-right government because they promised change. However, there's complete continuity between the liberal technocratic governments of former prime ministers Mario Draghi and Mario Monti  and the current one. Meloni's Minister of Finance is Giancarlo Giorgetti from Bocconi University — the same guy who was there with Draghi! And Meloni’s budget for the coming fiscal year is pure austerity. She’s defunding hospitals and schools, eliminating the subsidies for the poor called reddito di cittadinanza, expanding regressive taxation, and privatizing while pushing for further labor deregulation. It's the whole austerity trinity — except for monetary policy, which is managed by the European Central Bank. This is no shock. Historically, when it comes to managing the economy, liberals and fascists have been allies. That's still true. Their authoritarian tendencies may surface in different ways. But, ultimately, the two camps are pushing in the same direction.

DV | Since WWI, has anyone defeated the drive toward austerity?

CM | Not to my knowledge. While 1919 was a really exciting year both for the reformists, who passed many welfare initiatives, and the more radical workers’ councils, who called for workers’ self-governance, this did not last long. Even in revolutionary Russia, Vladimir Lenin’s New Economic Policy basically acceded to some form of austerity. The Soviets had little choice. To compete globally in a capitalist system, they had to deflate their economy. From the 1920s onward, it’s been quite austere all around.

DV | Couldn’t that ingrain a sense of powerlessness? Recall Fredric Jameson's formulation. “It's easier to imagine an end to the world than an end to capitalism.”

CM | I hope the message of the book is actually the opposite. The fact that we think there's no way forward outside of capitalism speaks to the “success” of austerity. If you break out of austerity, you're breaking out of capitalism. We need to think big, but this doesn't mean that it's impossible. There's a huge amount of movements going on even now as we speak that are about achieving independence from market forces. Look at La Via Campesina, a movement that unites farmers throughout the South of the globe to demand workers’ sovereignty in food production or the neighborhood councils in Chile that mobilize to organize resources democratically and had a big role in the Chilean constitutional process before it was tanked by their supposedly left-wing government. Organizations like these are rekindling democratic engagement in the production process and ecological sustainability.

Now more than ever, we must rethink what type of state we want. The capitalist state is clearly one that must do austerity. And this is also clear for other systems that had to compete in the global order. Even globalization is unnatural and politically constructed. But everything that's actively constructed can also be actively deconstructed if people participate. And this is why I think those on top are constantly concerned. They know that the system is fragile. Although they’ve used neoclassical economics to convince us it isn’t. But I believe in the power of workers to think bigger and defeat capitalist realism.

DV | Economists in the last decade have become smitten with cash transfers, basic incomes, taxing capital flows, etc. as antidotes to economic malaise. These proposals are mostly encased in the framework of neoclassical microeconomics and liberals seem excited about them.

CM | I think those proposals are quite naive. They assume you can have the best of all worlds — a sort of “fair capitalism.” I don't believe capitalism can be fair. In a capitalist economy, the state’s ability to redistribute is necessarily limited — especially politically. These economists fail to see that. Otherwise they’d understand that a livable universal basic income would be a revolutionary measure. Society would cease to be capitalist. Some neoclassical economists, especially those who work at the Federal Reserve and International Monetary Fund, are perfectly aware of this. That is why they often block such policies.

DV | Have you debated other economists who criticize austerity, but consider it merely a bug and not a feature of capitalism?

CM | It's hard to have these debates. Economists generally believe the political and economic realms should be separate. They think I’m not really doing economics because the discipline is ontologically founded on that separation. But that’s an artificial, ideological divide. It’s ideological in the sense that it perpetuates illusions which help foster consensus for the system. Even colleagues at the New School, whose economics department is amongst the most radical, separate politics and economics. The dominant creed is that doing economics has little to do with the actual social relations of production.

DV | After World War II came the Keynesian era of the welfare state and managed capitalism, where wages and capital returns grew at similar rates. Why didn't we see the wave of austerity and fascism that followed World War I?

CM | This is a very important question and is indeed the guiding one of my next book project with the University of Chicago Press. I can start providing a very preliminary answer. The revolutionary spirit of 1919 was not as palpable after World War II. Workers became more integrated in the capitalist state apparatus. This was the great success of Fordism — the system of mass production and consumption characteristic of “developed” economies. Fordism got workers to accept exploitation in return for somewhat higher wages and moderate social benefits. In moments when political upheaval is weaker, states can undertake more ambitious redistributive efforts without risking subverting the entire system. By contrast as I show in my book, after World War I, reconstructionists tried to appease the population through welfare reform. But, in moments of more heated challenge to the pillars of the system, they weren't successful. Rather, their reforms instilled in workers a greater sense of possibility. Getting something caused the majority of citizens to demand more — perhaps even an overthrow of the whole system. Why just accept the lengthening of the leash? 

After World War II, the revolutionary surges weren’t as powerful. This enabled the reformist vision of giving a little without challenging capital accumulation as such. That’s their political project.

Consider the policies implemented after World War II. The term "austerity" was popularized by Britain’s Labour government in 1948. Why? Because they prioritized the inflationary threat. In the historical trade-off between inflation and full employment, they chose to tame inflation. This led to a huge wage freeze in 1964.

Policymakers in Britain, the United States, and Europe were always concerned with compressing wages to avoid diminishing profits and private investment. Monetary stability and international competitiveness were sacrosanct. Sure, profits were so high that real wages grew alongside them. But how much space was there for more structural distribution of resources?

All this makes you question the supposedly great divide between Keynesians and Hayekians that I intend to explore further. Neither John Maynard Keynes nor Friedrich Hayek theorized about exploitation or understood capitalism as the problem. That’s why Keynes sought to optimize the system rather than replace it with something better. Let’s not make the same mistake.